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2006 Annual Report—Federal Reserve Bank of DallasThe Best of All Worlds
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Exhibit 2. An Encyclopedia That Speaks VolumesMeasured in words, Wikipedia passed 100 million in January 2004, 1 billion in February 2006 and 1.7 billion in September 2006. Just as important, the online encyclopedia dispenses information in Swedish, Russian, Chinese, Portuguese and 245 other languages—a testament to the Internet as a truly global information source.
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All this information would be overwhelming without the tools to find what we want. Digital technologies make it easy to scour the world for news, images, business opportunities, job openings, suppliers, and the best prices for all sorts of goods and services. In the U.S. alone, Internet users conducted an average of 213 million searches a day in April 2006. And it didn't cost them much. Like many Internet offerings, search engines deliver highly valued services at minimal cost—in fact, free at the margin.
We possess not only more knowledge but also better and cheaper ways of sharing it. Information once traveled at the speed of foot, hoof and sail. Telegraphs, telephones and teletype machines greatly increased the information speed limit—but they were expensive and not widely used. Only in the past decade or so have costs fallen enough to ignite a global communications explosion.
Go back in time and consider the telegraph, an 1837 invention that succumbed to progress in 2006, when Western Union discontinued commercial service. In terms of U.S. wages, the cost of a 10-word international message dropped from 93 hours' pay in 1900 to 11 hours' in 1930 to 84 minutes' in 1960. Despite the plunge in cost, international telegrams never reached prices ordinary Americans deemed a bargain. On average, they sent just one overseas telegram every six years from 1930 to 1960. (See Exhibit 3.)
Exhibit 3. Ties That BindCommunications spur globalization because they facilitate the spread of knowledge and information across borders. International connections were once prohibitively expensive, but cheaper telephone calls and the Internet have given them a powerful boost in recent years. Cheaper CommunicationsThe TelegraphThe work-hour cost of sending a 10-word message overseas fell 98 percent over 60 years. International telegram traffic, however, peaked in 1929 at just one message for every six people.
The TelephoneInternational call volume languished for decades, despite a long-term decline in the real cost of service. Growth began to take off only in the past two decades as the toll became nearly negligible.
The InternetE-mailing is cheap—whether messaging someone in town or Timbuktu. The number of messages, even excluding spam and advertising, has surged as more people have become connected around the world.
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Real costs plummeted for U.S. international telephone service, just as they did for telegraph service. A 10-minute international call fell from the equivalent of 844 hours' pay in 1934 to 10 hours' pay in 1968 and one hour's in 1990. The steep decline didn't spur a boom in international communications. In the past decade and a half, however, U.S. rates have dropped 95 percent, reaching just three minutes' work time in 2006. Over this period, annual international call volume skyrocketed as the service finally became cheap enough for the masses. Use jumped from a half hour per person in 1987 to almost five hours today, an increase twice as large as what occurred in the 70 years after the start of transatlantic service in 1927.
Today, communication is omnipresent, fast and cheap. The world is better connected than ever, with 22 landlines and 42 cell phones for every 100 people. The Internet has emerged as a virtual global village. A total of 209 nations are now online, up from just 20 in 1990. A sixth of the world's population has regular Internet access, and cybercafes cater to millions more.
Spiderwebs of fiber-optic cables give us the bandwidth to move massive amounts of information nearly anywhere in a heartbeat. Today, the world has 217 million broadband subscribers, with Internet connections capable of transferring the equivalent of 6,100 pages a second. It took 30 minutes to send the same pages at the standard modem speed in 1997.
The sharp decline in computer communication costs has spurred a rapid expansion in traffic. The Internet and e-mail—part of our lives for only 15 years—have spread quickly. We maintained 1.4 billion e-mail accounts in 2006. Worldwide business and personal e-mail traffic jumped from 18 per capita in 1995 to nearly 1,500 in 2006.
Additional barriers to connectivity will crumble if countries and donors buy into MIT professor Nick Negroponte's $100 laptop, which incorporates a hand-cranked generator and Wi-Fi transmitter. The device aims at nothing less than bringing the world's knowledge to bright minds wherever they may be—even among the most isolated students.
In just a few years, digital communications have done for information what transportation technology did for goods. In 1956, a North Carolina trucking company owner named Malcolm McLean introduced containerized shipping, featuring 40-foot steel boxes that could be lifted from ships to trucks or trains without repacking.
In the decades that followed, huge container-shipping companies from the U.S., Taiwan, Denmark, South Korea and elsewhere vied for cargo, helping cut real ad valorem global ocean freight rates by 40 percent since the early 1970s. (See Exhibit 4.)
Exhibit 4. Getting the Goods More CheaplyThe cost of moving cargo has declined steadily, both for ocean shipping and airfreight, spurring global competition among producers and helping make imports cheaper for consumers.
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Efficiency gains have been impressive in ground shipping, but they've been even greater in air cargo, especially over longer distances. In 1970, doubling airfreight distance would have increased shipping costs by 43 percent. Today, sending air cargo twice as far raises prices only 16 percent.
Brainpower and communications mark our modern economy. The more we know, the more we communicate, the more we can gain from globalization.
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Almost 900 million personal computers are in use worldwide—roughly one for every seven people. The best of them are 40 times more powerful than the machines of just a decade ago. Our capacity to store knowledge has become immense. A single USB memory stick can hold as much data as nearly 11,400 of the 3.5-inch diskettes that were standard issue in the early 1990s. A decade and a half into its existence, the Internet can store the equivalent of 62 stacks of 500-page books reaching to the moon.
